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US watchdog accuses regional businessman of crypto ‘pump and dump scheme’

The United States Securities and Exchange Commission is filing civil lawsuits against a former Grand Bend businessman who it alleges was a key player in a $36.8 million cryptocurrency scheme as the Ontario Securities Commission calls for severe penalties against him.

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The United States Securities and Exchange Commission is filing civil lawsuits against a former Grand Bend businessman who it alleges was a key player in a $36.8 million cryptocurrency scheme as the Ontario Securities Commission calls for severe penalties against him.

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The Securities and Exchange Commission alleges that Troy Hogg, the former owner of Gables in Grand Bend, his Canadian company Cryptobontix, a Bermuda-based firm Arbitrade and three other men violated federal securities laws by performing an alleged “pump-and-dump.” system with a crypto good called dignity.

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The Ontario Securities Commission, which froze and sold assets including Hogg’s Colonial Hotel as part of its 2021 investigation, issued its own statement regarding allegations against Hogg, Cryptobontix, Arbitrade and two of Hogg’s other companies, TJL Property Management Inc .and Gables Holdings, out .

“Hogg and his companies committed fraud against unwitting investors,” said the OSC’s indictment, filed Friday, the same day as the SEC’s civil complaint. “In addition, significant amounts of investor funds were diverted by Hogg and its companies Arbitrade Ltd., TJL Property Management Inc. and Gables Holdings Inc. for their own purposes, contrary to representations made to investors.”

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Investor funds were used to purchase or renovate a hotel, restaurant and bar in Grand Bend along with “two luxury motorboats and other assets of Hogg and his businesses, including TJL and Gables,” the OSC indictment said .

The SEC’s civil complaint, like a complaint in the Canadian legal system, and the OSC’s allegation involve claims that have not yet been tested in court.

When reached by phone on Wednesday, Hogg referred any questions about the SEC and OSC’s actions to his attorney.

In an email Wednesday, Hogg’s attorney, Bruce O’Toole, confirmed that he is representing Hogg in answering the Ontario Securities Commission’s allegations. “Mr. Hogg intends to take a full stand against these allegations. He has no further comments at this time,” O’Toole wrote in an email.

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In its 25-page civil complaint, filed in a Florida court, the SEC alleges that Hogg violated numerous US securities and stock exchange laws, including selling an unregistered security and selling securities fraudulently.

Dignity was a crypto asset developed in 2017 by Hogg’s firm Cryptobontix, an Ontario-registered company, the SEC claims. The US Securities and Exchange Commission alleges that Hogg “used Arbitrade, another shell company he controls, as the corporate face behind the company.”

Though he’s not a publicly traded officer or director of Arbitrade, the SEC alleges that Hogg exercised “overall control” of the company and owned 60 percent of it. The three other men named in the filing are said to be key players in Arbitrade’s day-to-day operations and “so-called international gold traders,” according to the SEC filing.

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In marketing the crypto product, the defendants falsely claimed they acquired $10 billion worth of gold bullion and backed each Dignity cryptocoin with $1 gold, the SEC alleges.

The regulator alleges that between May 2018 and January 2019, Hogg and the other defendants made “material misrepresentations and omissions to investors” in press releases and at a press conference related to the sale of Dignity coins.

The “false and misleading” press releases increased demand for Dignity coins, leading to a price spike, the SEC claims. The Bitcoin proceeds from the sale of the Dignity crypto assets have been converted into cash and distributed, the regulator claims.

“Although this case involves crypto assets, it bears the hallmarks of a classic pump-and-dump scheme,” the SEC claims.

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A pump-and-dump scheme is a type of securities scam in which the price of a stock or security is inflated through intentionally manipulative and misleading statements. When the price is high, the perpetrators sell or sell their shares, causing the price to fall and often significant losses to other investors.

The SEC confirmed the Ontario Securities Commission’s support in its investigation.

The U.S. Securities and Exchange Commission is seeking a number of remedies in federal court, including disqualifying Hogg and the three named defendants from any officer or managerial position, and requiring the defendants to surrender “any ill-gotten gains or proceeds” and pay civil penalties.

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The OSC is seeking several penalties against Hogg, Cryptobontix, Arbitrade, TJL Property Management and Gables, including a permanent ban from selling securities, a ban from serving as a director or officer in companies that issue securities, handover of funds, which were “received as a result of failure to comply with the Securities Act of Ontario” and payment of an administrative penalty of up to $1 million.

The SEC lawsuit and OSC indictment are the latest in a long history of legal troubles for Hogg.

Hogg drew public backlash in December 2019 after a New Year’s Eve party he organized at the Grand Bend Motorplex was abruptly moved to London and then cancelled. At the time, many ticket holders were upset with the ambiguity surrounding refunds and the writing of checks by date for the $200 event tickets.

Hogg claimed the event was canceled due to an insurance and liquor licensing issue that arose when the venue was moved to London.

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